Consumer Debt

January 18, 2017

You’ve probably heard of the “fireman arsonist syndrome,” a mental disorder where firemen set fires so they can be heroes who extinguish them. See also, hero syndrome.

This is the best psychological description I can find of s slew of Trump nominees or rumored appointments, although with one big twist. These nominees actually don’t want to save people or policies meant to protect our safety and security. They’re all about "burn baby burn." And they are open about it. More or less the opposite of heroes.

Take Betsy DeVos, whose Education Secrecy nomination hearings began yesterday. DeVos is “a billionaire Republican with no professional experience in schools,” but whose personal philosophy is “laser-focused on undermining … public schools”

Besides that troubling fact, there’s the concern about her “extensive financial holdings” in RDV Corporation:

RDV is affiliated with LMF WF Portfolio, a limited liability corporation listed in regulatory filings as one of several firms involved in a $147 million loan to Performant Financial Corp., a debt collection agency in business with the Education Department.…

If confirmed as secretary, DeVos would be in a position to influence the award of debt collection, servicing and recovery contracts, in addition to the oversight and monitoring of the contracts. She would also have the authority to revise payments and fees to contractors for rehabilitating past-due debt — all of which has Senate Democrats concerned.

In sum, under a DeVos-led Education Department, America’s public schools systems (which teaches 90 percent of students), might go down in flames, but ruinous student debt could be spectacular for the DeVos’s!

In the past, Neugebauer has come out strongly against the CFPB, criticizing several key rules concerning payday lenders and mandatory arbitration. The former lawmaker even introduced legislation in May 2015 that would completely change the CFPB structure, removing power from the director and handing it over to a commission, thereby restricting its ability to independently craft regulations.…

Understandably, consumer advocates are slamming the potential choice of Neugebauer to lead the watchdog agency he seems to have been trying to destroy. “He is a complete hack for the industry on pretty much every issue,” Paul Bland, the executive director of Public Justice, told MONEY on Friday.

[Sen. Elizabeth] Warren -- along with Democratic Senators Chuck Schumer and Sherrod Brown -- said in a joint conference call Tuesday that they will do everything they can to prevent Trump from dismissing Richard Cordray, the head of the CFPB.

"The CFPB is on the verge of finalizing three critical laws," Warren said, referring to rules on debt collection, payday lending and forced arbitration. She said firing Cordray would be a "huge handout to [bank] lobbyists."

Cordray and the CFPB have taken on big banks like Wells Fargo as well as shady payday lenders.

December 22, 2015

It’s the holidays. It's the end of the year. It’s winter solstice. It’s Hollywood award season. Around this sacred time of year, we always think about whether there’s a deserving group or industry worthy of a PopTort accolade. (Here’s last year’s!) We almost passed up the opportunity this year. Then, the New York Times came.

First, let me set the stage. For decades now, industry groups and corporations who want to block consumer and injury lawsuits, have been engaged in a pretty relentless campaign to turn the American public's mind against the civil justice system. They call us all “sue happy” and try to breed fear, anger and contempt for injured people who file lawsuits.

Yet take a look at the data on who actually files lawsuits, according to the National Center for State Courts and the U.S. Department of Justice, Bureau of Justice Statistics. (See here, here.) For years, the data have shown that personal injury and other tort cases account for only a tiny percent of cases filed in civil court. Most recently, that percentage was 7 percent of all civil cases. So what are the other 93 percent? Turns out that debt collections and other suits based on contracts account for a large majority of civil caseloads today.

A few years ago, NCSC took a close look at caseloads in Kansas, for example - a state that closely tracks data on the kinds of cases in its court system. In 2009 in Kansas, 80 percent of new cases were contract disputes, and 75 percent of those were debt collections. In its most recent report, NCSC found that “contract and small claims cases comprise 80 percent of civil caseloads. … [and that] contract caseloads consist … primarily of debt collection (37%), landlord/tenant (29%), and foreclosure (17%) cases.” And these kinds of cases are climbing.

As NCSC explains, “The picture of contemporary litigation … is very different from the one suggested in debates about the contemporary civil justice system.” Among the “more likely explanation[s] is the focus on high-value and complex litigation by the media (especially business reports), much of which is filed in federal rather than state courts. Lower-value debt collections, landlord/tenant cases, and automobile torts involving property damage and soft-tissue injuries are rarely newsworthy.”

I would say "rarely newsworthy" until perhaps today. Following it’s extraordinary three-part series on the corporate use of forced arbitration clauses (see our earlier post here), the New York Times today published a new article, which not only finds debt collections plenty newsworthy but also explains these statistics in a way we’ve never seen before. Specifically, writes reporters Jessica Silver-Greenberg and Michael Corkery, debt collection companies “are using the courts to sue consumers and collect debt, then preventing those same consumers from using the courts to challenge the companies’ tactics.” Even if those tactics are flat-out illegal. They write,

The New York Times found in an investigation last month … that banks, car dealers, online retailers, cellphone service providers and scores of other companies have insulated themselves from challenges to illegal or deceptive business practices. Once a class action was dismantled, court and arbitration records showed, few if any of the individual plaintiffs pursued arbitration.

In the last few years, debt collectors have pushed the parameters of that legal strategy into audacious new territory. Perhaps more than any other industry, debt collectors use the courts while invoking arbitration to deny court access to others. The companies file lawsuits seeking to force borrowers to pay debts. Because borrowers seldom show up to challenge the lawsuits, the collectors win almost every case, transforming debts that banks had given up on into big profits.

Moreover,

In the case of debt collectors, the arbitration clauses that companies are invoking are often in contracts that borrowers presumably agreed to with their original lenders — not with the debt collector. Additionally, debt collectors often cannot produce a copy of the agreement in court, according to records and interviews.…

Because the tactic is still in its early stages, there is no data tracking the cases. But The Times, examining thousands of state and federal court records, and interviewing hundreds of lawyers, plaintiffs, industry consultants and judges, found that debt collection companies have already used the strategy to great success.

In the cases that The Times examined, judges routinely sided with debt collectors on forcing the disputes into arbitration. …

“It’s beyond hypocritical that the companies can use arbitration to avoid being held accountable in court, all the while using the courts to collect from consumers,” said Peter A. Holland, a lawyer who ran the Consumer Protection Clinic at the University of Maryland’s law school.

How many of these cases are flooding the courts, you might wonder?

In 2014, the industry filed roughly 20,000 lawsuits in Maryland and more than 67,000 in New York, according to court records.

Philip S. Straniere, a civil court judge in Staten Island, called some of the cases that crossed his desk “garbage.” Some debt collectors, Judge Straniere said, have sought to recoup payments from the wrong person.

Little of that matters, because many defendants do not show up to defend themselves. Some never read nondescript legal notices informing them of the lawsuits. Others who do are too intimidated or ill-equipped to go to court.

Once it begins, the litigation machine is virtually impossible to stop. When defendants are absent, judges have little choice but to find in favor of the debt collectors, according to interviews. Industry consultants estimated that collectors win 95 percent of the lawsuits.…

In an industry podcast, two lawyers discussed the benefits of using arbitration to quash consumers’ lawsuits. The tactic, they said, is emerging at an opportune time, given that debt collectors are being sued for violating federal law.

The beauty of the clauses, the lawyers said, is that often the lawsuit “simply goes away.”

I hate to leave on this depressing debt-focused note during what should be a joyful gift-buying season. But there is one thing you can do right now to feel a little better.

The U.S. House leadership just decided to schedule a vote on an extremely dangerous bill that would wipe out virtually all class actions. In other words, to the extent that class actions exist anymore given how forced arbitration clauses have blocked so many of them, this bill would wipe out the rest of them. This is not an exaggeration. (A large number of groups are expressing their opposition.) The bill, H.R. 1927, has been renamed the "Fairness in Class Action Litigation and Furthering Asbestos Claim Transparency Act of 2015," because House leaders apparently also want to wipe out the rights of asbestos victims. Yes, it’s that bad.

The House plans to schedule a vote on this horrendous bill the first week of January 2016, as if this is one of the important things our nation can do right now. If you have a moment, please let your member of Congress know how you feel. We hope that becoming active and doing something positive might make you feel a bit better.

March 10, 2015

What if, just what if, a federal agency were ordered by Congress, had funding and enough staff to conduct an empirical study of what happens when people’s legal rights are weakened or stripped away? Would they find that claims disappear if legal obstacles are too great? Would law-breaking companies or grossly negligent professionals get away with harming people with impunity? Would people even know that their constitutional rights have been taken away?

These are big questions that have swirled around the “tort reform” debate for decades. Some empirical data, but mostly anecdotes and common sense, have provided the answers to these and other questions. When “tort reform” laws are on the books, lawsuits can drop “practically to zero”. Look at the area of medical negligence, where preventable errors are at epidemic levels – the third leading cause of death in America. Ninety-nine percent of the time, there is no claim or legal accountability. If jury verdicts are severely limited by law, lawyers’ paid on contingency cannot afford to take many of the most serious and costly cases. And as any trial lawyer who has to turn away 100 cases for everyone 1 they take knows, most people have no idea that lawmakers have stripped away their rights – or even that they may have voted to give up their own rights, convinced by fabrications and fear-mongering by industries seeking immunity.

The good news is that as of today, a broad empirical study – one with the full force of the federal government - does exist on at least one extreme aspect of this issue: forced arbitration clauses and class action bans in consumer financial contracts. Today, the federal Consumer Financial Protection Board released an extraordinary study – over 700 pages long – finding that these clauses indeed keep lawsuits from being filed, forcing consumers with disputes with banks, credit card companies, payday lenders and so on, into private, rigged corporate system. But since most cases are too expensive and difficult to bring individually, these clauses plus class action waivers result in the disappearance of claims and immunity for the wrongdoer. Here are some of the specific highlights of this study:

These clauses are incredibly widespread. For example, “Among mobile wireless providers who authorize third parties to charge consumers for services, 88 percent of the largest carriers include arbitration clauses. Those providers cover over 99 percent of the market.”

If forced into arbitration or prevented from filing as a class, most people with disputes give up. Of the tens of millions of consumer financial contracts out there, consumers filed only about “600 arbitration cases and 1,200 individual federal lawsuits on average each year in the markets studies [credit cards, checking accounts, prepaid cards, payday loans, private student loans, and mobile wireless contracts].… By contrast, on average, roughly 32 million consumers were eligible for relief through class action settlements in federal court each year.…

Contrary to persistent rhetoric about class actions only benefiting attorneys, CFPB found, “The settlements totaled $2.7 billion in cash, in-kind relief, expenses, and fees” with only about “18 percent of that going to attorneys’ fees and expenses.”

And as CFPB also notes, “these figures do not include the potential value to consumers of companies changing their behavior. In the cases for which data was available, at least $1.1 billion was paid or scheduled to be paid to at least 34 million consumers.

There’s the data. The U.S. Chamber of Commerce responded in typical fashion with anti-lawyer rhetoric. But not just any rhetoric. Rhetoric that is now contradicted by data. They just look foolish.

In terms of the tort system, the data are there too. So I hope for two things. First, that the CFPB moves ahead with a rule banning forced arbitration clauses and class action waivers. Here’s a Change.org petition, waiting for your signature. Second, that “tort reform” laws get the same kind of attention and imprimatur someday - before the civil justice system disappears.

October 15, 2014

Today, the Center for Justice & Democracy at New York Law School released a brand new study, “First Class Relief: How Class Actions Benefit Those Who Are Injured, Defrauded and Violated.” The study is a compilation of more than 150 recent class actions that have been litigated and settled since 2005. It's an examination of a wide array of cases, and I mean wide: cases involved predatory and discriminatory lending, like illegal auto finance and mortgage loan mark-ups, payday loans, unlawful practices targeting Servicemembers, and Ponzi schemes. Many race and gender employment discrimination class actions. Nine antitrust class action settlements that distributed over $1 billion to tens of thousands of consumers and small and medium-sized businesses from companies who participated in criminal price-fixing cartels! Wow.

Plus car defects and repossessions, sports tickets, film and television residuals, tainted pet food, contaminated drinking water, home decks and furnace defects, nursing home deficiencies, and health insurer abuses. CJ&D found overwhelming evidence that class actions have not only helped victims of corporate law-breaking but also led to changes in corporate behavior that protect us all from many types of illegal conduct.

The study comes in the midst of a great deal of activity aimed at fighting back against the increasing use of forced arbitration clauses and class action bans in consumer and employment contracts. Alliance for Justice has released a new film about this problem, entitled “Lost in the Fine Print,” narrated by former U.S. Secretary of Labor Robert Reich. And a new petition effort asking five Wall Street banks to stop using forced arbitration clauses has already gathered tens of thousands of signatures in its first week.

We always knew that class action lawsuits were among the most important tools that cheated and violated individuals and small businesses have to recover stolen money, hold large corporations and institutions accountable and deter future misconduct. At last, the evidence – all in one place!

July 28, 2014

Do you think Congress really cares about those who serve in the military? I’m of several minds here. First the good news. Over the weekend, “House and Senate negotiators reached agreement … on a legislative package intended to stabilize the Department of Veterans Affairs’ sprawling and embattled health care system.” Writes the New York Times,

The legislation is expected to include provisions for emergency relief that would allow veterans who live far from a V.A. facility or who face wait times that exceed a certain duration to see private doctors, and have those visits paid for by the government. The measure is also expected to set aside billions of dollars to hire new doctors and nurses; build or lease dozens of additional buildings needed to treat patients; and upgrade the department’s outdated scheduling system.

So, some action for vets. But still no congressional help for those serving in the military who are victims of negligent health care. As we’ve noted on this blog severaltimes, the Feres Doctrine, “a 60-year-old policy that effectively bars U.S. military personnel from suing the government for injuries caused by the negligence of others in the armed forces … has been interpreted to extinguish the legal rights of those who serve in war and survive, only to return home but are seriously injured as a result of gross medical malpractice by military health care providers.” Congress has, so far, refused to fix this terrible injustice.

The SCRA provides a wide range of protections for individuals entering, called to active duty in the military, or deployed servicemembers. It is intended to postpone or suspend certain civil obligations to enable service members to devote full attention to duty and relieve stress on the family members of those deployed servicemembers. A few examples of such obligations you may be protected against are: Outstanding credit card debt; Mortgage payments; Pending trials; Taxes; and Terminations of leases.

Problem is, the law contains some significant loopholes. ProPublica has just published a very sad investigative piece called, “Thank You for Your Service: How One Company Sues Soldiers Worldwide.” A company called USA Discounters targets military families for predatory loans. That shouldn’t happen but it does. They write:

[The company’s] easy lending has a flip side. Should customers fall behind, the company transforms into an efficient collection operation. And this part of its business takes place not where customers bought their appliances, but in two local courthouses just a short drive from the company's Virginia Beach headquarters. A USA Discounters location in Norfolk, VA. The retailer has locations near military bases across the country, but uses the local courts near its Virginia headquarters to file lawsuits against service members who fall behind on their loans.

From there, USA Discounters files lawsuits against service members based anywhere in the world, no matter how much inconvenience or expense they would incur to attend a Virginia court date. Since 2006, the company has filed more than 13,470 suits and almost always wins, records show.

"They're basically ruthless," said Army Staff Sgt. David Ray, who was sued in Virginia while based in Germany over purchases he made at a store in Georgia.…

The federal Servicemembers Civil Relief Act, or SCRA, was designed to give active-duty members of the armed forces every opportunity to defend themselves against lawsuits. But the law has a loophole; it doesn't address where plaintiffs can sue. That's allowed USA Discounters to sue out-of-state borrowers in Virginia, where companies can file suit as long as some aspect of the business was transacted in the state.

The company routinely argues that it meets that requirement through contract clauses that state any lawsuit will take place in Virginia. Judges have agreed.

And here’s another loophole, which Congress need to fix. These contracts typically contain forced arbitration clauses so if a victimized service member wants to take this or any other company to court, they can’t. See Public Citizen’s great report on this pervasive and unjust problem.

And lately, the FTC has been up to its eyeballs monitoring the credit reporting industry. In 2010, the agency issued new rules about those deceptive and often irritating “free credit report” commercials, advertisements and websites. They aren’t. Free, that is. Wish that were the only problem.

Today, the FTC released a new study finding that when it comes to the three biggest credit bureaus - Experian, Equifax and TransUnion, “As many as 42 million consumers have errors on their credit reports, and around 20 million have significant mistakes.” Says the FTC, “One in four consumers identified errors on their credit reports that might affect their credit scores,” but only “[o]ne in five consumers had an error that was corrected by a credit reporting agency (CRA) after it was disputed, on at least one of their three credit reports.”

So as beneficial as FTC monitoring is, sometimes it’s not enough. And that was made clear in last night’s 60 Minutes piece about how nearly impossible it is to get a credit reporting agency to fix a mistake once they know about it, sometimes with ruinous consequences for the consumer. And that’s where lawsuits and state Attorneys General can step in.

First the lawsuits. Judy A. Thomas, who had a great credit history, was denied car loans, credit cards, etc. etc. because her credit reports confused her with someone named Judith Kendall who had a lot of debt. It shouldn’t have come to this, but until she took those credit agencies to court, nothing got resolved.

As for AG’s, back in 1996, Congress amended the Fair Credit Reporting Act (FCRA) to include state enforcement provisions. (See more in this law review article.) And last night’s piece, based on a series that first appeared in the Columbus Dispatch, showed how valuable a move that was. Writes the Dispatch:

Ohio Attorney General Mike DeWine [who appeared in the 60 Minutes piece]… and at least 24 other state attorneys general launched an investigation into the three national credit-reporting agencies after a Dispatch series Credit Scars, exposed systemic flaws in their operations that prevent consumers from correcting costly mistakes.

DeWine has discussed the problems with officials from Experian, Equifax and TransUnion. No solutions have been proposed yet, he told The Dispatch on Friday, but his work with them will continue…

Without that power, these 24 state AG’s would have no tools to help their own citizens, if only to try to push Congress to strengthen the federal law. This is the kind of state power that groups like the U.S. Chamber of Commerce and the American Tort Reform Association want Congress to strip away. Seems they don’t want to sully our federalist system with too much state power. … Oh wait.

May 09, 2011

This morning, ProPublica co-published (with Slate) an eye-opening article about mortgage servicers. These banks and lenders, some of the same companies that led to the financial crisis, are at it again.

Guilty of all sorts of abuses and violations of law, including robo-signing, which we talked about here, mortgage servicers have been facing increased litigation from homeowners. They want the lawsuits to stop and they've figured out how to stop them!

In return for granting homeowners a “break” on their mortgages, mortgage servicers are forcing homeowners to waive their right to bring a lawsuit for anything having to do with their loan forever.

Many desperate homeowners may not even realize they’re signing a waiver, since it’s buried in the fine print of their contracts. But even if they are aware of it, they’re in a terrible position. If they don’t sign, they’ll lose their homes. What choice do they have?

What makes this worse is that regulators have already banned this practice. But as ProPublica noted, mortgage servicers who limit or take away a homeowner’s right to sue have a variety of excuses: they argue about the language in their contracts and exactly what it prohibits; they site a loophole in the regulation that they claim makes their actions legal; or, as in the case of Bank of America, they say the waivers are in the contracts as a mistake. A mistake that somehow keeps happening!

And, perhaps most importantly, while the law forbidding these waivers applies to loan modifications, it does not apply to short-term forbearance agreements!

In other words, a mortgage servicer might think twice about sticking a waiver in an agreement granting long-term relief, but they’d have no second thoughts putting a waiver in an agreement which offers short-term relief – forbearance agreements last anywhere from three to six months. Your typical desperate homeowner, unable afford an attorney, might not realize that his three-month reprieve comes at such a high cost.

Funny that these are the same mortgage companies whose illegal and abusive predatory lending practices helped cause the subprime mortgage crisis. As the Center for Justice and Democracy noted in a 2010 study, the mortgage companies could always be sued for predatory lending, while "Wall Street firms that pressured lenders to make these risky loans are not and they knew it at the time.”

It seems the banks and lenders have had enough. If homeowners can’t sue Wall Street firms, they don’t want to be sued either. It remains to be seen if these waivers will hold up in court, but it’s pretty obvious that this is yet another example of corporations taking advantage of unsuspecting, vulnerable citizens.

July 14, 2010

Unless you’re about 200 years old, you probably don’t
remember debtors’ prisons, given that the U.S. abolished them in 1833.

At least that’s what we thought.

Two Minnesota legislators announced yesterday that they will
be introducing legislation to deal with “a growing public concern --
highlighted in a continuing Star Tribune series, ‘Hounded’ -- that debtors are
being sued for money they don't owe and, increasingly, jailed when they fail to
appear in court.”Apparently
the paper found that “use of arrest warrants against debtors jumped 60 percent
in the past four years, with 845 cases in 2009. Some debtors who were arrested
said they were unaware they had been sued for their debts and were required to
appear in court.”

All of this
comes on the heals of an incredible report issued Monday from the
Federal Trade Commission, Repairing
A Broken System: Protecting Consumers in Debt Collection Litigation and
Arbitration, that found “that
the system for resolving consumer debt collection disputes is broken, and
recommends significant litigation and arbitration reforms to improve efficiency
and fairness to consumers.” (text here)

The report “recommended that state governments toughen laws
to reduce the number of unsubstantiated lawsuits against debtors. It called on
states to require collectors to offer more proof of debts in their lawsuits,
and to curb suits over debts for which the statute of limitations has expired.”

In addition, “The Commission vote to issue the report was
5-0. Commissioner Julie Brill issued a concurring statement in which she urged
Congress to enact a temporary ban on the mandatory arbitration of consumer debt
collection disputes. ‘Such a ban should remain in place until the arbitration
process can be shown to be fair, transparent, and as affordable as traditional
litigation, and until consumers have a meaningful opportunity to opt out of
pre-dispute arbitration without losing access to the credit services they
seek,’ she said.”

The Minnesota lawmakers have been pushing this issue for
years, and believe – hopefully – that the FTC report will “strengthen[] the
case for changing the law."

Also incredibly, the New York Timesreported that debt
collection law firms have been clogging the courts with these lawsuits.

The litigation boom has been propelled by fundamental
changes in the way debts are collected, particularly for credit cards.…
Collection law firms are able to handle such large volumes of cases because
computer software automates much of their work.…Once the data is obtained by a law firm, software like
Collection-Master from a company called Commercial Legal Software can “take a
file and run it through the entire legal system automatically,” including
sending out collection letters, summonses and lawsuits, said Nicholas D.
Arcaro, vice president for sales and marketing at the company. … Most consumers
fail to show up in court, and those who do rarely have a lawyer.

…

Lawsuits are sometimes filed against the wrong people,
critics say. Other times, they say, the amount owed is incorrect or includes
questionable fees and interest that has been added to the balance.

So while debt collections are skyrocketing, personal injury
lawsuits continue to drop.

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